Duke Economics Working Paper #03-13

The U.S. Orphan Drug Act incorporates market push and pull incentives to encourage the development of new drugs for rare diseases. These include tax credits and grants, FDA counseling and encouragement, and a market exclusivity provision. The Act has been a great success in increasing the number of approved drugs for rare diseases. While new medicines for the neglected diseases of poverty are technically eligible for the incentives embodied in the Act, less than five percent of the orphan drug marketing approvals have been for such indications. The basic problem is insufficient expected revenues associated with the low ability to pay for health care in poor countries. There is the need for a strong market pull mechanism applicable to neglected diseases in poor countries.

The focus of this paper is how to amend the Orphan Drug Act to include such a strong market pull mechanism. Prior authors have focused on transferable or roaming exclusivity rights and purchase funds as market pull incentive mechanisms. In this paper, the concept of a transferable right of priority review is developed as an alternative to transferable exclusivity rights. Transferable rights of priority review have advantages as a decentralized market incentive mechanism. In particular, they are likely to be more cost effective and acceptable politically compared to transferable exclusivity incentive programs. Furthermore, they could be designed to complement government and private donor purchase funds targeted to specific conditions with high disease burden such as malaria and tuberculosis.

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